Do Tougher Bankruptcy Laws Increase Mortgage Defaults?


It used to be that when people got into more financial trouble than they could manage on their own, they would declare personal bankruptcy.

Then, in 2005, U.S. bankruptcy laws became more stringent: The amount of home equity that was protected from creditors was subject to tougher rules and, along with additional costs, filing bankruptcy was not the "fresh start" for the many who had used it before.

Now the National Bureau of Economic Research (NBER) has released research that argues that the change in bankruptcy rules actually forced more homeowners into mortgage default than otherwise would have been the case. The group of economists that authored the report say that nearly 200,000 mortgages are delinquent or have gone into default because of the new laws.

Could more homeowners have held on to their homes if bankruptcy laws were preserved?